Let’s assume John and Mary Smith are buying a house and visit a mortgage loan office to complete an application for a home loan. Listen in, early in the process.
Mortgage Loan Officer: What is the LTV?
J&MS: What is an elteevee?
Mortgage Loan Officer: Oh, sorry. LTV means loan–to-value. It is the ratio of the first mortgage as a percentage of the total appraised value of the property. How much are you putting down on the house?
J&MS: Oh, the house is $200,000 and we have $20,000 to use as the down payment, err, DP.
Mortgage Loan Officer: Okay, that means you are putting down 10% and your LTV is 90. It also means you’ll need MI.
J&MS: And that is …?
Mortgage Loan Officer: Oh, right. MI is mortgage insurance and is generally required when a down payment is less than 20%. There are several ways we can handle this MI, so let’s discuss them.
J&MS: Wait; is this the insurance that pays off the home loan if one of us dies?
Mortgage Loan Officer: Umm, no….
Acronyms and ‘- gate’ Words
In a mere 10 seconds, John and Mary Smith have been exposed to three mortgage acronyms. There are at least 150 others. This use of short-hand lingo is not unique to the mortgage industry. It’s not even unique to industry. And, further, it is all related to spawning new and entertaining ways way to crinkle the English language.
Think Watergate. If you are a sports fan (or live with one, as I do), the latest ‘- gate’ is Deflategate. Directly from the source of all that is good, accurate, and just – Wikipedia – “Deflategate is a controversy in the National Football League (NFL), stemming from an allegation that the New England Patriots used suspiciously underinflated footballs in the American Football Conference (AFC) Championship Game against the Indianapolis Colts on January 18, 2015. It has also been referred to as "Ballghazi".”
The list of ‘- gate’ scandals is hysterical, annoying, offensive, descriptive, or at least emotion-generating -- you choose. Consider NJ Governor Chris Christie’s Bridgegate. Ridiculous? Incriminating? Fodder for excellent late night talk show jokes? What about Bill Clinton’s Monicagate? Do you recall Weinergate? But there has recently been a movement underway (obviously ignored by the writers of Deflategate stories and moi) to cease using the ‘- gate’ suffix to denote scandals. It matters little as there are still so many other ways to employ acronyms and other alphabetical antics to ravage our vocabulary and make it oh-so-difficult to learn to speak English in America.
But I digress…. Today, I want to focus on a recent mortgage acronym in order to increase your home loan intellect so you can impress friends, coworkers, and puppies. Let’s delve into TRID, the mortgage industry’s latest challenge.
The TILA-RESPA Integrated Disclose (or TRID) rule represents significant mortgage changes slated (so far) to become effective on August 1. Note: do not attempt to embrace any meaning from this word spelled backwards … sorry.
TRID essentially consolidates four existing disclosures -- required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) -- into two forms: a Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application, and a Closing Disclosure that must be provided to the consumer at least three business days prior to the closing. These changes are expected to impact the length of time it takes for closings to be conducted and they allow for little or no last-minute changes to the transaction.
The CFPB posted the final TRID rule in November, 2013, and set that effective date for August 1 of this year, giving the mortgage lenders nearly two years to adapt their processes, operations and systems so they are able to comply with the new regulations.
So what’s the problem? No, the correct question is, “What are the potential and likely problems?” Consider these:
- Technology and all loan origination systems need to adapt to the new regulations and time frames. That involves reprogramming, possible purchase of new software, hiring of employees to facilitate these changes or sub contracting for same, etc.
- Loan processing work flows may need to be completely re-designed. Most lenders currently try to provide closing documents one day ahead of closing. If changes are necessary, I have often seen them be completed via phone, fax, and email AT the closing table. That will no longer be possible.
- Loan Officers, Title Compnaies, Realtors, Real Estate Attorneys, and other Settlement Providers all need to be trained and monitored and re-trained if necessary.
- Home loan applicants must be informed of their rights and correct expectations must be set and met. Communication well prior to closing will need to improve significantly. I’ve had at least half dozen clients who changed their minds regarding the down payment, interest rates, or even homeowner’s insurance company the day of closing.
Not a day goes by that a mortgage banking association, title company, law firm, government agency, or teachers looking for summer work (kidding on that last one) are not offering webinars, in-person classes, online or hard copy manuals, software solutions, and consulting services to assist lenders in being prepared for TRID. No one knows the quality of these aids, the prices vary widely, and lenders are often confused about which is best and who to trust. Many times, then, they choose “none of the above”
And lenders are not the only ones who seem unprepared. According to an Inman article dated May 5, nearly 30 percent of title professionals admit they are behind schedule regarding TRID. In the same article, Anonymous Debbie Downer (apologies, I added that nom de plume) opined that the three-day rule will lengthen the mortgage approval process, delaying the closing past the seller’s contracted date. This means an addendum to extend the closing date will be needed, which takes additional time to get the seller’s approval and signature. Well, yikes!
Industry Guru Rob Chrisman noted that the Iowa Bankers Association published an easy-to-read grid on the before and after rules and regulations. And more help is on the way! The CFPB has posted on its web site a mere 32 links to materials you may need or want. The MBA has also created helpful ways mortgage lenders need to be prepared.
What a mess. With all that said, there is every indication that either all parties effected by TRID will get it together and be prepared for the August 1 roll out or, if not, the deadline may actually be postponed. Why? That’s the important question here – WHY is all of this even necessary? Why is TRID the latest mortgage industry rule?
TRID is primarily about new disclosures and time frames. The purpose of the new forms is to bring greater clarity and transparency to consumers regarding the costs associated with their mortgages. TRID also places the responsibility for this under just one governing body -- CFPB.
For more than 30 years, the TILA and RESPA mortgage disclosures had been administered separately by, respectively, the Federal Reserve Board (“FRB”) and the U.S. Department of Housing and Urban Development (“HUD”). In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) transferred authority over TILA and RESPA to the Bureau and directed the CFPB to create “rules and model disclosures that combine the disclosures required under [TILA] and sections 4 and 5 of [RESPA], into a single, integrated disclosure for mortgage loan transactions covered by those laws”. Previously, those documents were designed to work together to provide a complete picture of a loan transaction. But inconsistencies in wording and content have challenged lenders and confused consumers.
The 1888 page TRID rule is 17 years in the making. It was announced two years ago and is official (assuming no extensions are granted) on August 1. And, most importantly, its intent is to make mortgage terms, costs, and processes clearer to home buyers and to mitigate some risks to them, in writing.
So my ‘new’ word Tridgate is technically not applicable in that no real scandal has occurred. However, for those lenders who -- due to financial, technology, or other constraints -- fail to adopt and execute TRID rules on August 1, an old tautonym may be exactly relevant – bye-bye*. J
* Tautonym: David Grambs uses this term for a word or name made up of two identical parts, such as so-so, tom-tom or Pago Pago … more crinkled English!